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[Editor's Note: In his State
of the Union Address in January 2007, President Bush revealed
a new and startling plan to double the Strategic Petroleum Reserve:
Read the ramifications of this unwise move from the New York
Times editorial here.]

How Bush Pushed Gasoline Prices Sky High

By Katherine Yurica

On March 5, 2003, Senator Carl Levin, the
Ranking Minority Member of the Senates Permanent Subcommittee
on Investigations, released a report prepared by the minority
staff that reveals why gasoline prices soared under the Bush
administration. It has to do with the nations Strategic
Petroleum Reserves (SPR) and some odd decisions by the Department
of Energy (DOE) after consulting with White House officials.

According to the Senate Report, the Bush
administration added forty million barrels of oil to the nations
reserves in 2002. That wouldnt be a problem in and of it
self. But the purchases represented an extreme change in energy
policy; they were made in a strong market, with a tight supply
of oil, which increased demand, which in turn pushed up the gasoline
prices to their highest levels in twelve years.

The Senate report said in a one-month period
in mid 2002 the Bush administration purchases caused crude oil
prices to soar, raising the cost of heating oil by 13%, jet fuel
by 10% and diesel fuel by 8%. The bottom line was the Bush policy
change cost citizens between $500 million and $1 billion.

When crude oil jumps from $20 a barrel to
$30, the Senate report says, the costs to U.S. taxpayers are
an additional $1 million per day. Over three months, the
additional cost of filling the SPR approached $100 million,
which will ultimately be borne by U.S. taxpayers.

Why did Bush do it? For one thing,
he was advised to do it. It has to do with the secret National
Energy Policy advisory group headed by Vice President Dick Cheney.
Cheney has steadfastly refused to release the names of those
who advised the administration on energy matters. However, according
to an article published in the Sunday Herald in Scotland
(October 6, 2002), by Neil Mackay, it was former Secretary of
State, James Baker who personally carried an advisory report
to Cheney in April of 2001. Assembled at the James A. Baker Institute
for Public Policy of Rice University, the task force consisted
of oil and energy executives. The report, Strategic Energy
Policy Challenges for the 21st Century is referred to simply
as the Baker Report or report below.

The report advised the new president, At
a minimum the government should aim to fill all of the nearly
700 million barrels of [reserve] capacity it currently has available.
Later, the National Energy Policy report recommended that the
President wait until exchanged SPR barrels were returned and
then he should determine whether offshore Gulf of Mexico royalty
oil deposits to the SPR should be resumed. So after September
11, 2001, George W. Bush vowed to fill the Strategic Petroleum
Reserves (SPR) to capacity.

The Baker report was not irresponsible,
it also warned the president, One problem with trying to
refill the reserve at this time when markets are strong is that
any purchases made by the U.S. government would add to the current
tight supply. In other words, prices would go up!

At one point, the Baker report recommended
that purchases of reserve additions be accomplished through direct
budgetary allocations.

Trying to teach a new president the facts
on SPR oil rights and wrongs must have been a heady proposition.
There were many object lessons in which to point. The
Baker report singled President Bill Clintons use of
his discretionary authority to lease oil to the market
on a time-swap or exchange basis as an example of a no-no. First,
according to the Baker experts, Clintons exchanges reduced
the size of the SPR at a time when more oil might have been needed.
Next, the report chided, a president must not earn far
less in interest than he could have, by using better methods.
Perhaps Clintons biggest faux pas according to the
Baker experts is that he used the drain-down of the reserves
to address winter heating-oil inventory concerns,
which indeed reduced heating oil from $37 to $31 per barrel.
That was a big no-no. The Baker report advises a president must
not use the SPR as a market buffer stock to damp prices
and price volatility. (Translation: A president must not
help the poor to heat their homes at a reasonable price at the
expense of oil company profit taking.)

Hence in the National
Energy Policy report, the NEPD Group recommends
that the President reaffirm that the SPR is designed for addressing
an imminent or actual disruption in oil supplies, and not for
managing prices. (At page 8-17.)

That recommendation signaled a significant
policy change: it denied the president the right to withdraw
oil at times when prices are unusually high due to manipulation
of the market.

What were the superior choices left for
the President? The report advises taking advantage of the
markets forward price structure if the market structure
were backwardated, with future prices lower than current prices,
the government would be able to replenish the reserve with more
oil than it had leased on an auction basis. If the market structure
were in contango, with future prices higher than prompt prices,
the government could lease its cheaper spare storage capacity
to industry, thereby also providing revenue to build government-owned
reserves at a later time.

But the method the Bush administration chose
was to fill the SPR without regard to crude oil prices at all
but simply at a constant rate of speed. The result was extremely
high prices for gasoline and increased charges to be born by
the taxpayers. The Bush administration denies this. But the method
they chose did not add any additional reserve oil to the nations
strategic supply. So why do it? Oil companies were happy, after
all oilmen contributed $26.7 million to Bushs campaign
in 2000 and another $18 million for the 2002 election.

Another possible reason is this: The
only way to get oil companies willing to make investments in
drilling new sources of oil is to keep oil prices high. The nice
thing about this methodology is that criticism can be so easily
deflected as a White House spokesman did in a recent interview,
by claiming the purchases were for national security reasons.

Whatever the motivation, this much is clear:
American citizens had to pay and are still paying a hefty price
for gasoline and home heating oil. In the end, regardless of
the lip service Mr. Bush may offer to the American people on
how he is benefiting all citizens, the facts show he benefits
those corporations who made large contributions to his campaigns.

Documentation & Links

2. U.S.
Strategic Petroleum Reserve: Recent Policy Has Increased
Costs to Consumers But Not Overall U.S. Energy Security by
Minority Staff of the Permanent Subcommittee on Investigations.
This is a 294 page report in
a PDF file. See Senator
Levin's summary at:

Katherine Yurica was educated at East Los
Angeles College, U.S.C. and the USC school of law. She worked
as a consultant for Los Angeles County and as a news correspondent
for Christianity Today plus as a freelance investigative
reporter. She is the author of three books. She is also the publisher
of the Yurica Report.

One of the stranger and
so far unexplained items
in President Bushs energy program is his proposal
to double the capacity of the Strategic Petroleum
Reserve, to 1.5 billion barrels, over the next 20 years.
The proposal carries a $65 billion price tag  one of
several reasons Congress should question Energy Secretary
Samuel Bodman closely when he comes looking
for the money.